Trading in the video game retailer’s shares, which have been a favourite of day traders communicating on social media platforms such as Reddit and Twitter, had to be halted twice, as stock exchanges’ automatic stabilisers kicked in.
In January, a short-squeeze in GameStop shares inflicted severe losses on hedge funds betting against the company, and some posts on Reddit exalted in the sudden resurgence of the stock after weeks of declines.
The company’s stock was halted shortly before the closing bell at $91.70, a 104 per cent gain from Tuesday’s close.
The sudden burst of activity spread to other stocks that had also become popular with traders on the Reddit forum WallStreetBets. Distressed cinema operator AMC closed up 18 per cent, clothing retailer Express climbed 41 per cent, and communications software group BlackBerry gained 9 per cent.
The surge in GameStop shares quickly made it the top-performing stock in the broad-based Russell 3000 index.
The stock continued to rally in after-hours trading after the halt lapsed, more than doubling again to trade at $191. More than 82m GameStop shares traded on Wednesday, the highest number since January 27.
While members of WallStreetBets cheered on the stock price gains, some were also left wondering who or what had sparked the rise. Late on Tuesday, GameStop announced that its chief financial officer had resigned and would depart in March. The stock had slipped initially on that news.
Derivatives traders also turned to short-dated call options in GameStop on Wednesday, which would pay off in the event shares of the company rose. Volumes of call options reached the highest level in nearly three weeks, with some 262,000 of the contracts traded on Wednesday — five times the level on Tuesday, according to Bloomberg.
Some investors piled into bullish options that had strike prices above $500 a share. Those options would only pay off if the stock climbed above that level — a price only briefly hit during the January rally.
Christopher Jacobson, a strategist at Susquehanna, said the options activity seemed to exacerbate the move in GameStop shares, although he said he did not believe the positioning in derivatives markets was an “instigator of the rally”.
The market furore in January captivated everyday investors and drew many inexperienced traders into the market. A Congressional hearing last week on the trading activity focused on Robinhood, the broker that popularised commission-free stock trading, and its decision to halt trading in GameStop and other stocks favoured by investors on Reddit forums.